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Subsidized Loans: A Relic of Our Past?

The other day, when I found out that graduate student aid had been heavily hit by the budget deal struck by Congress, the only thing I could think to tweet as I shared a link on the topic was “you’ve let students down.” The tweet came somewhat out of fear for my own financial future, but mostly for that of my fellow students. I am fortunate in that I have an assistantship and am pursuing a PhD (which can, potentially, open doors to new funding sources than I could access during my MLS, although I doubt people will be banging down my door and hurling money at me.) However, having just completed that degree, I remember what a struggle it was to track down funding outside of student loans and what a blessing subsidized loans and deferred payments were for me. It made it possible for me to go to school, and I suspect the same is true for many HLS readers. With that in mind, I thought I would devote my post to talking about the changes in student loans, the little bit of sense I can make of it, and how it might impact graduate education.

My Story:
Like nearly every MLS student I’ve talked to, I relied on the maximum amount of Federal loans I was eligible for to pay my tuition, fees, and living expenses. I also had a part time job driving buses, and for a while another job at a library. At a certain point, I was ill and unable to work, and relied solely on my loan money and on my EBT card (food stamps.) I don’t know what I would have done without the loans! I owe a pretty penny now, but I got a great education and am on the path to doing some really awesome work in my PhD and beyond. Because I’m (mostly) done relying on student loans (save for a bit I’m taking out to settle in FL) the loss of subsidized loans won’t impact me as much as it might impact others, in the sense that half the loans I have are subsidized already. That being said, once they start accruing interest that could hurt me in a pretty big way. But, before I have too severe of a panic attack about my potentially bleak financial future, let me go over the nuts and bolts of the proposed changes.

The Word on The Street (where ‘The Street’ is published news sources):
A word of warning: I am not an economist. So, as you read this, remember it’s from a layman’s perspective and thus may lack the nuanced understanding of economic policy held by those who interpret these things for a living. Here is what I understand to be going on:

Student loans will still exist, but the subsidized ones won’t be available for grad students. Pell grants are still available to undergrads (which is good news for my partner, who’s finishing up his AA at the moment!) So, what this means is that students will have to pay interest on the loans while they are in school, which means students will owe a larger amount of money (subsidized loans don’t accrue interest while you’re still in school.) Some of the incentives for paying on time will also be eliminated as well, which means that (again) students will have to pay more, because they won’t get whatever reductions they are currently receiving.

These changes go into effect after this school year is finished (July 1, 2012, to be exact) and only impacts loans taken out after that time. So, if you currently have subsidized loans, those will stay subsidized, but your new loans for next school year will all begin accruing interest immediately. If you are receiving incentives for making payments on time, those would presumably end at the same time.

While I’m sure there is some fine print that will become clearer in the future, this brings a few major issues to my mind immediately. The first is the added financial burden placed on grad students to attend school. We aren’t known for our high rolling lifestyles in the first place, and with very few exceptions I suspect this deal will force students to be on an even tighter budget. Most likely, a number of students will have to drop out of programs (in LIS or otherwise) and take lower paying and/or less fulfilling jobs out of necessity. I can’t imagine how I would have cut back any further, especially in the second year or so of my MLS when I relied so heavily on public assistance! Additionally, some graduate students have families and all of us are in intensive courses of study (including the folks in this article) that prevent us from picking up extra hours at work to start paying our loans down. This could translate to higher payments after graduation, or a longer repayment period, both of which negatively impact our futures.

I understand that graduate students are very privileged because we are educated and have better job prospects (potentially) than our non degree-holding counterparts, but that amount of social capital does not necessarily translate to tangible wealth. I also know that there are any number of social programs that need funding just as much as education. I’d like to keep my political sentiments off HLS, but suffice it to say that I feel we could have made cuts/revenue increases in places that would impact people with more expendable income.

There is also a tad of backlash against students themselves, as in this Moody’s report, where students are told to choose fields that are in demand and finish quickly. True, this helps limit the amount of debt a student has, but this mentality also has the effect of devaluing higher ed. If I were hoping to go to school solely to get a job, I would have chosen a trade school (which is another form of education that should be both validated and encouraged, but that’s a different discussion for a different time.) I chose a liberal arts curriculum because I wanted to push myself to learn about subjects outside my major area and to gain a broader perspective that can be applied to my work. I also chose it because *I like learning!*

Learning new information, researching, and sharing knowledge are things that get me really excited and are, in my humble opinion, part of what makes our world delightful to be in. Rather than telling me that learning for its own sake is wrong, maybe the focus should be turned back to lenders and the terms of student loans, which are often severe (I just did my exit counseling for my MLS–It was incredibly disheartening.) I’m not saying we should send an angry mob out after lenders–after all, without them, we wouldn’t be lent the money to finance our education in the first place. I just feel that education should be a priority in this country, and that the importance of learning, sharing, and discovery should be paramount to our experience as students. Instead of telling students to hurry up, why don’t we find ways to fund subsidies and scholarships that will allow more people to attend school?

Fellow students: how do you think this will affect you? Do you have solutions or ideas to share? Additional resources?

26 thoughts on “Subsidized Loans: A Relic of Our Past?”

Thanks so much for sharing this information, Julia! I had no idea subsidized loans won’t be offered to graduate students after this academic year (sidenote: I really need to keep up on my news reading). I originally only accepted part of my offered subsidized loan amount for this year, but after finding out I won’t have access to it next year, I’m going to increase it to the maximum. Since I work full-time, my salary goes to paying my living expenses (which in DC basically takes up all my money) — but there’s no way I can pay tuition right now without loans.

I turned down the loans I was offered for this academic year, because I couldn’t imagine having to pay all of that back! I do work full time, and will get tuition reimbursement from my employer after I submit each semester’s grades. It’ll take me longer to finish my MLS this way, but it’ll happen in time. I’m fortunate to have the tuition reimbursement benefit, otherwise I might be taking out loans too.

That is great news, Lesley. I’m glad you are in a situation where you have tuition reimbursement. I wouldn’t be worried about spending extra time in the program: I took an extra year, and got a lot more out of my program because of it!

I know a great deal of my fellow colleagues are upset with this new development myself included. I agree that education should be a priority. Students are a struggling group to begin with and should be rewarded for pursuing higher education instead of having not only taken away our subsidized loans in 2012 but also any incentives we had for paying early/ on-time.
I will be ending my program in May 2013. Luckily I have a partial scholarship but I foresee myself taking advantage of my subsidized loans until the last possible moment and then unfortunately relying on unsubsidized loans my last semester.

I agree–education should be awarded, not punished! I am not looking forward to paying back loans without those incentives for sure. It’s good news you have a scholarship at least, hopefully that helps lighten your financial burden!

I’m finish my MSLIS this week/i> so in all likelihood it will not affect me personally, but what I had originally heard was that this was a compromise – certain Republicans wanted to eliminate subsidized loans altogether, and Pell grants along with them, which would have been much worse. And I’m not an economist either but I AM a political scientist (so says my diploma even if nobody pays me for it), so I’ve studied economics more than the typical layperson.

I think that the real problems here are mostly due to the fact that college tuition is completely out of whack with the actual demand for degrees. Loans are an incredibly inefficient subsidy for education, and essentially push down the economic benefit of a degree while inflating their cost, and indeed this is a problem across all areas of public fiscal policy, where you have one side saying “efficient subsidies will help everyone” and the other saying “no subsidies ever (except for my district/donors)” and the compromise is wasteful inefficiency.

It’s related to but mostly independent of the other problem you note, which is of people going to “college” (and not trade school) because it’s the default option and not because they’re seeking a liberal arts education. I think what this really demonstrates is how dysfunctional our cultural attitudes about education continue to be, where I bachelor’s degree is seen merely as a basic prerequisite to employability, but at the same time, liberal education is derided for it’s lack of economic utility. We crave both the prestige of liberal education and the skills-based utility of trade degrees, but in the process devalue both.

That’s ok, it just means everything is emphasized! ;)
You make some really good points–I agree that loans are an inefficient use of funds and devalue education. Inflated education costs are a huge problem, and I’m hoping issues like this will help reshape how we think about education and encourage a lower cost, more accessible higher ed system (I’m not holding my breath though, as I suspect it will go the other way.) I am glad that opportunities like Pell Grants aren’t being eliminated, though! The next thing I’m trying to figure out is how to open up a discussion about improving education and making it a greater priority, although I haven’t thought of any brilliant solutions yet.

I also hope that this may lead to a discussion on the costs of higher education in this country. They have gotten completely out of control. I have always hoped that if there was a limit to how much students could take out, then maybe schools wouldn’t charge so much. I know that’s naive but it’s my hope.

Higher education is a business. Whether a college is a non-profit or not they have shareholders (alumni, endowment, etc). And with colleges adding things like fancy gyms, cafeterias, and dorms to get more students to attend (and pay more tuition), the costs are only going to go up.

I actually did not get a liberal arts undergrad education. I went to a five year program where I worked for 6 months (paid) every year. I graduated with a ton of experience. But also a ton of debt. That I’m still paying off. And now will be losing that percentage decrease on my interest rate. So I did “what I was told” and got that “useful” education and job experience. And even a well paying job after graduation. Still have debt. And now my current debt from graduate school is limiting the type of work I can do because I have to pay these loans. Ok I’ll stop going around in a circle.

But the one thing I will say, is that I’m very glad these conversations are happening. Hopefully they aren’t just happening within a bubble…

I hope so too! I guess the next question is, how do we make sure we push these conversations outside of a bubble and engage more people?
I get really frustrated with the whole ‘education as business’ thing. Like Joseph said, it will take a dramatic shift to move from that mindset to one where education is valuable for its own sake (and perhaps, even, a right) but I hold out hope that maybe we can get there! I felt such anger at the administration at my last school (not my department, btw) because they were slashing programs, getting rid of faculty, and reducing student support, all while building fancy new buildings and sending tons of money to the football team.
I watched the school go from being someplace where education was valued to someplace purely run as a profit making machine, and it was really difficult for me to see because I love a lot of things about that school. I get the feeling that the same thing is happening in other schools around the country and in debates about education as a whole. The current limits we have on loans ($150k or something ridiculous) are so high that rates can keep going up and students are forced to pay them. Hopefully we can start steering things in a new direction soon!

Thank you for sharing Julia. I need to pay more attention to the news too. I haven’t had to use any loans so far…and will be able to complete most of my MLS without them (combination of loans & tuition discount through my job). But I always kept the option of using subsidized loans in the back of mind just in case I can’t find enough scholarship money. I do know people who have taken time off from school or only taken a class at a time because they don’t want to incur debt. That might have to be me next year. *sigh*

One thing I am loving about reading these comments is that you and others have mentioned successfully finding other ways to finance your education. A lot of students have loans, but it’s exciting to hear that not everyone does! Hopefully you won’t have to take fewer classes or anything next year.

Thanks for this entry, Julia. I too would not have been able to complete my MLIS/M.A at Simmons GSLIS if it had not been for subsidized and non-subsidized loans. I agree with most posters here that the problem stems from a differentiation between what we are made to pay and the actual value of our degree. I am quite lucky in that I found a job straight out of Simmons (Content Manager at Kaplan Publishing) which utilizes my skills appropriately and pays all my bills including loan payments. That said I recognize that this situation is rare among recent graduates and believe that the move towards eliminating subsidized funding for graduate students is short sighted. Rather than going for vulnerable targets, our “leaders” should be focusing on restructuring and trimming down our general financial structure. It doesn’t make sense to essentially shoot ourselves in the foot if more important and bigger changes can be made elsewhere.

Agreed–I feel like there are a number of other places we could have made changes without hurting our collective future to such an extent by reducing access to education. I (obviously) am biased for a strong educational system, but it is one of those issues where I have trouble seeing eye-to-eye with those who don’t see it as important. Alas, it sounds like it was less brutally cut than it might have been, so I keep forcing myself to remember that in an attempt to stay positive.
Congratulations, btw, on getting a job straight out of school!

The really unfortunate part about all this is that most students who receive subsidized and unsubsidized loans now can’t even pick up the pace to get things done sooner (and save money) since any course burden they add now will only be covered by unsubsidized loans (or cash, if they have it).

True true. There are also caps on how many subsidized loans you are eligible, so even if students tried to cram everything in this school year before it takes effect, their additional courses would still be unsubsidized. I’m hoping that some other form of relief comes along soon for students, although I’m not sure what that would be.

I agree with what was expressed several times above: that this is symbolic of the issues facing higher education. For librarianship (and other high education/lower income positions, like teaching) in particular, I also worry about how this is going to affect the diversity of librarianship (and I mean diversity in all of its manifestations). Low-income, rural, people with families… as if there weren’t already enough disincentives for choosing service careers, this makes it even more difficult to create a representative profession.

Britt, this is an excellent point! I’ve wondered about the same thing. It seems like one potential solution would be to encourage some library positions to be apprenticeship-based, although the problem with that is that students would lose a lot of the ‘big tent’ experiences that school is great for (your post about that springs to mind!)

not necessarily … you see, when i got my loans i got a subsidized loan and an unsubsidized loan. i didn’t need as much as they had offered, but it wouldn’t have made sense to choose unsubsidized loans before using subsidized money. i would expect anyone to exhaust their subsidized offer before taking any unsubsidized money (and so doubling up the pace wouldn’t help since the only money available is unsubsidized).

I’m not sure which section you’re replying to, but I think you sum up some of what I said in the piece. I also got subsidized and unsibsidized loans, but I did need all the money offered so had to take out both. I don’t think most students would choose unsubsidized loans if there were subsidized ones available, because that increases the cost of their education. However, since subsidized loans will not be offered after July 2012, students will not have that option.

This speaks to a larger sense of general unease in this economy, I think. I had originally planned to get a PhD in the humanities, and it’s not that I don’t have the skills or the dedication – I just can’t see spending 5 or 6 years in a program (even if it is paid for!) and then have such a poor chance of being employable. Adjuncts are basically slave laborers at many schools, with no sense of stability or support. And tenure-track jobs that used to be the gold at the end of the rainbow are as elusive as a leprechaun.

Then I came to understand, as many do, that library science would suit a lot of my strengths. And it’s a much shorter program, at least. Have to go into debt? Yes. Likelihood of getting a good paying job? Slim. Likelihood of getting a job at all? Judging from what one reads online, getting slimmer. (whether or not this is an accurate sample set is another discussion altogether…) So what then? What are educated people to do, or people who value education, when they can’t pay their loans, they’re trying to be fiscally responsible but nonetheless eclipsing opportunities to buy houses and accrue debt that might actually be worth something some day by paying off (now unsubsidized) student loans forever, all while job hunting and coming up empty? The world needs teachers and librarians and humanitarians, but we don’t value them and we don’t facilitate their achievement in this economy.

All that being said, I’m probably still going to move across the country and go into debt to start an MLIS program next fall. Because as bleak as things may be, I’m tired of feeling helpless. The government has its priorities and I haven’t agreed with them in a long time. I have to view education as valuable, even if that value can’t be computed with any calculator or Moody’s report. We do some things because they seem right, not because they make much sense.

Your last paragraph sums up a lot of why I went to school too–I will be in debt for a good many years, but the reason I went into debt is valuable enough to me to justify it. My concern is that the misalignment of government priorities and those who value education and recognize the importance of librarians/educators/researchers/etc will become so great that education will no longer be an option for nearly anyone. I think we are a ways off from that yet, and hopefully the worst case scenario will never come close to being a reality. I’m excited to hear you’re going into librarianship, and would love to hear more about your experiences! It can be really hard to make that choice though–I am fortunate to be getting a PhD in Information Studies, where the job prospects perhaps aren’t stellar, but slightly more likely to land me a living wage than the History PhD I considered and then decided against!